An extremist, not a fanatic

March 15, 2012

Robin van Persie & the cost of inequality

Two of the great issues of our age are: what impact does inequality have upon economic performance? and: should Arsenal give Robin van Persie a massive pay rise to hold onto him? A new paper bears upon both questions. It studied serie A games in 2009-10 and 2010-11 and found:

Pay dispersion has an overall negative impact on team performance…doubling pay dispersion [as measured by the Theil index] decreases by 6% the probability of winning a match.

This is a big effect. The authors estimate that if a team changes from everyone being paid the same wage of €600k pa (the average in their sample) to a superstar earning €1.5m pa and everyone else in the team getting €510k, the chances of the team winning a game falls by 20 percentage points. That’s almost as big an effect as having to play every game away from home.

This adverse effect comes because pay dispersion worsens individuals’ performance, as measured by newspapers’ (highly subjective) ratings. And it seems that the highly paid players’ performance suffers as much as that of regular players. It seems that the “pressure of expectations” can depress superstars’ performance, whilst other players’ do worse because they (subconsciously?) relinquish responsibility as they look to the superstar to win them the game.

Or is there? All this applies to the pay of the players who appeared on the pitch. Looking at the dispersion among the entire squad, which includes non-playing members, things are different. Pay dispersion here might actually have a positive effect upon performance. This suggests that the optimum structure is one of relatively equality among first-team players, but inequality between first-teamers and squad players.

However, whilst this is an important caveat for football, it hardly applies to companies generally where all employees are in effect players. This, then, is more evidence that paying huge wages to superstars can often backfire. And it’s evidence that inequality can be economically damaging.

Emotionally speaking, I want RVP to stay - ideally without jeopardizing the wage structure to much.
WHat I can guarantee though is that if RVP gets a big pay rise, at Arsenal or elsewhere, the monent he hits a run of average form, the newspapers will say the money/pressure/acclaim has gone to his head and will ignore the simple fact that form has an element of randomness.

Bear in mind that reported player wages are often "on target earnings" - i.e. they assume you hit all your bonus thresholds.

Traditionally, first team appearances have been the main bonus driver, with final league position and cup victories ahead of goals and assists (i.e. team over individual). This means that squad players usually do have an incentive to play well enough to get picked, rather than settling for life in the stiffs and a fat cheque.

The "egalitarian" wage structure at AFC predates Wenger, though it seems to chime with his own views. As he is an economics graduate, I suspect he has given the matter of incentives some thought.

What is also worth bearing in mind is that he has turned a £31m profit on a transfer turnover of £202m over the last 5 seasons. Some fans are unhappy about this, seeing it as evidence we could be spending more, but what it actually shows is that the policy of paying young squad players well not only pays for itself but provides funds to further raise the structure - i.e. an excellent ROI.

I don't think Wenger should break the wage structure (it would be the board's decision anyway), as that will create unsustainable inflation and piss off the rest of the squad. RvP comes across as having a strong team ethic, rather than being wholly mercenary, so I suspect he appreciates this. I may be clutching at straws, but I hope this means he is minded to stay.

In a little over a year's time Van Persie will become a free agent as his contract will have expired. The cost of replacing him will be astronomical and quite beyond Arsenal's reach.

We should persuade him to extend his contract to three years by offering him an wage increase from £80k to £100k and paying him a signing-on fee of £15 million (worth about £100k a week over the length of the contract).

He receives the £200k a week reportedly on offer elsewhere, and remains at a club with a fine and noble tradition , where he is feted and adored. We retain one of the finest strikers in the world for less than half a Carrol and under a third of a Torres.

Having said that, I don't think money is Van Persie's primary motivator.

"When scouts are sent to matches they are asked to assess one, at most two, players, so asking journalists, who also have to compile match reports, to judge 22 professionals – plus substitutes – on a one to 10 basis is ludicrous. The upshot is loads of meaningless sixes, not to mention the occasional tap on the shoulder from the disgruntled recipient of a five."

This rings true to me, and if the research uses these figures as a meaningful proxy for performance, that seems flawed. If it doesn't need these figures, and I've misunderstood, then as you were!

As measured by newspapers' ratings? Hmmm, they are indeed incredibly subjective, and biased as well. It's amazing how one goal can lift a players rating up from a 6 to a 7, even if he played no part in creating that goal.

"The glaring problem is Arsenal have not won a trophy in six years..."

This of course is a complaint often levelled at Arsenal. But who _has_ won a trophy in the last six years?

Since Arsenal's last win in 2005 only seven English teams have won a tournament, either domestically or in Europe:
Manchester United
Chelsea
Liverpool
Portsmouth
Manchester City
Tottenham
Birmingham City

It's like speculating about US presidential elections - there are so few data points that any inference is highly unreliable. You can draw your own conclusions about how much individual trophies mean from the subsequent performances of Portsmouth and Birmingham.

Of course when Arsenal does get round to winning something again, I will ask Chris to delete this comment so I can crow about it accordingly. #sourgrapes

Alexross, it's correct that Arsenal haven't won a trophy in six years, but that goes for quite a few clubs. They've been in a couple of Carling Cup finals without really trying, and one European Cup Final.

I think you can only really look at league position, as there's luck involved than a knock-out (not that that necessarily makes Arsenal look better).

As Chris managed to incorporate "Arsene knows" into his post, I have been trying to think of how to incorporate "he scores when he wants" into a relevant comment without forcing it in. I have failed.

"The glaring problem is Arsenal have not won a trophy in six years..."

Is six years a reasonable time-span though? Even if you stick to the Sky view that 'In the beginning, there was the Premier League' Arsenal's performance over that time-scale is much better than, say, Manchester City's (and even more so when you factor in Champions' League places as well).